Contract manufacturing refers to an arrangement where a manufacturer gets into a form of partnership with a company to produce their products for them, even place their brand name upon their products, for a fee. It is basically what you call outsourcing business production. It is what more and more small companies are opting for, especially in the pharmaceutical industry in the production of dietary supplements.

There has been some bad publicity going round concerning this kind of manufacturing especially because people equate it with taking away badly needed jobs from the economy, but this only happens when the outsourcing is done to overseas companies. Many contract manufacturers are within your own back yard and there is nothing unethical about outsourcing your production to them.

So many advantages can be associated with this kind of arrangement. Here are the top five.

1. Cost advantage
Outsourcing production results in some obvious cost gains. It basically allows the company to have finished products, branded with their company’s brand name, without having to incur the many costs involved in production. All they need to do is pay the contract manufacturing company a fee and just like that, they get their finished products. Shipping is even taken care of most of the times.

If the alternative were to be opted for and the company chose to produce its own products, they would have to deal with the cost of hiring a manufacturing plant or buying one, paying for electricity, water, raw materials and of course labour. They would also have to incur the cost of training employees on the latest trends in production.

The contract manufacturer, as they work in large scale, will be able to handle all these costs comfortably without necessarily transferring them to the price of the product.

2. Quality benefits
While your company might just be launching out into the production sector for the very first time, the contract manufacturer has probably been around for ages and knows all the tricks of the trade. The odds of a contract manufacturer producing higher quality goods than yours are much higher than you can afford to ignore.

The contract manufacturer specializes in production. They have probably invested in getting the best machinery and the most highly trained employees in the industry. Unless you are a fully-fledged manufacturing company yourself, you cannot compete against these odds.

Having a good contract manufacturing company as a partner results in high quality being transferred to the products you offer your customers, a definite plus for your company.

3. Focus advantages
The pressure and stress involved in running a manufacturing company is quite high. Think of the process of trying to get high quality raw materials for the best price, dealing with the occasional machine breakdowns while trying to beat deadlines. That in itself is quite enough for one company to handle. When you go ahead and attempt to combine your core line of business with manufacturing, one of them will have to suffer, and most of the times it is both.

Hiring a contract manufacturer relieves you of the stress of production, leaving you to do what you do best as a company, while your contract manufacturer also does what they do best.

4. Speed advantage
You will most likely get your finished product much faster if you hired a contract manufacturing company than if you tried to produce it on your own.

The reason is the same, the company has been in the business longer, and the company specializes in that particular business. This will open them up to avenues of efficiency, which most likely are not available to you.

Chances are that the contract manufacturing company already has strong existing bonds with the raw materials supplier and efficient systems that can keep running even when some few hitches occur. This comes to them from years of experience, something that will take you time you do not have to gain.

5. Mutual advantage
A contract manufacturing agreement results in the creation of an unbeatable team, that results in advantages for both the parties involved. You get to save on cost while getting higher quality goods at the same time while the contract manufacturing enjoys the security that comes from a steady flow of business, win-win situation!

Chad has devoted his writing to making small businesses come out on top and has of late been researching on contract manufacturing.